Washington Legislation to repeal the Medicare sustainable growth rate formula and revamp the physician payment system so it rewards high-quality care has garnered unanimous approval from a key House committee and constructive criticism from organized medicine groups.

The House Energy and Commerce Committee voted 51-0 on July 31 to approve its version of payment overhaul legislation. While eliminating the SGR would address the chief Medicare complaint many physicians have had for years, the American Medical Association and other organized medicine groups said they still will advocate for additional changes to improve the bill as other congressional committees take up their versions of reform legislation.

“Key to Medicare's success is ensuring adequate funding for the program's budget-neutral physician payment system that will promote sustainable practice environments and allow physician investment in new ways of improving patient care,” said AMA Immediate Past President Jeremy A. Lazarus, MD. “The AMA strongly believes that more work is required to ensure Medicare funding and payments keep pace with the cost of caring for patients, and to address the potential complexity of a proposed quality system that could distract from more effective efforts to improve patient care.”

The Energy and Commerce panel has been working on its bill, now dubbed the Medicare Patient Access and Quality Improvement Act of 2013, for two years. The committee held several hearings and solicited input from professionals in the health system while drafting the bill, which formally was introduced July 24 by Rep. Michael Burgess, MD (R, Texas). The SGR is scheduled to cut pay rates by 24.4% in 2014, but the measure would stop that reduction and future SGR cuts by repealing the payment formula.

Instead, pay rates would increase 0.5% annually for five years. This period of stability is designed to give physicians and other stakeholders time to help develop and test quality measures and improve their practices. The legislation would institute a quality incentive program at the end of the transition period in 2019, using an enhanced version of the Medicare physician quality reporting system.

Physician performance on PQRS measures would be a factor in deciding how their payments would be updated going forward. Depending on whether physicians fell short of, achieved or exceeded benchmarks in their specialties, they could see their payments decrease, remain level or increase.

Physicians also could opt out of the fee-for-service system and participate in an alternative payment model, such as a patient-centered medical home, bundled payment or episode-of-care concept.

Organized medicine groups have concerns over the baseline adjustments in phase one of this plan as well as over physician being pitted against physician in phase two.

The 0.5% increases would not fill the gap between actual costs and Medicare pay for physician services after years of inadequate updates, said Aurora, Colo., cardiologist M. Eugene Sherman, MD, chair of the American College of Cardiology advocacy steering committee. The quality program then creates a “tournament” among physicians rather than an initiative that attempts to build on quality improvement.

“A small percentage at the top get rewarded while the bottom get penalized, even though there may be reasons they might not meet standards,” Dr. Sherman said.

No differential pay for primary care

Primary care physicians also had sought higher payment rates during the period of transition away from the SGR. An annual increase for primary care services of 2% above the baseline rate would recognize the lack of investment in the specialty over the years, said Glen Stream, MD, board chair of the American Academy of Family Physicians. But there is no differential pay in the House bill.

AAFP will work to get such a measure into reform legislation as it moves forward, but the committee should be applauded for adopting the bill before the annual August congressional recess, said Dr. Stream, a family physician in Spokane, Wash. Two other congressional committees have jurisdiction over Medicare pay as well, but Energy and Commerce was the first to act and did so on a bipartisan level, he said.

The committee had focused on getting the policy details nailed down and indicated that it would determine how to fund the pay reforms later. Freezing Medicare physician pay rates at current levels would cost $139 billion over 10 years. Offsetting that amount could prove contentious, as Democrats on the panel have threatened to withdraw support if costs are shifted to program beneficiaries. For instance, the concepts of raising the Medicare eligibility age or increasing premiums have proven to be unpopular with Democrats — although President Obama has proposed revising beneficiary cost-sharing requirements in his budget proposals.

Budget neutrality may be bypassed

Some language in the Energy and Commerce bill effectively could siphon off some of the money that's pooled to pay for physician services.

Organized medicine groups have stated concerns about a provision in the bill that would target services deemed to be overvalued and correct those payment rates, recouping the savings from Medicare. The bill directs CMS to make net reductions of up to 1% in 2016, 2017 and 2018.

Currently, misvalued code adjustments are done in a way that maintains budget neutrality. For instance, if CMS reduces the values of several codes, the money realized from the process then is redistributed to other services on the Medicare fee schedule. More than 500 codes have been revised since 2009, resulting in $2.5 billion being reallocated to other services, the AMA and eight state and specialty groups stated in a July 25 letter to the committee. More adjustments are expected in the final 2014 fee schedule, with an additional 250 services scheduled for evaluation in 2015.

“Importantly, the budget-neutrality concept enables CMS to redistribute savings to services viewed as undervalued, as well as to new services when they are incorporated into the fee schedule,” the letter stated. “For example, medicine has long recommended that savings from misvalued codes be used by CMS to offset the costs of undervalued services, such as extending Medicare coverage to care coordination and chronic disease management services.”

During a recent Senate Finance Committee hearing, CMS Deputy Administrator Jonathan Blum was asked what additional powers the agency would like on Medicare payment. Blum broached the subject of budget neutrality by suggesting that the agency be given more flexibility.

“The budget-neutrality requirement that we have in the statute constrains our ability sometimes to be truly forceful in reducing overvalued services,” Blum said. “One opportunity we would like to have is to think carefully about waiving that budget-neutrality requirement so we can drive total costs down to a lower level.”